Economic Integration and the Two Margins of Trade: The Impact of the Barcelona Process on North African Countries Exports

Abstract

According to recently developed models of trade based on imperfect competition and heterogeneous firms, lower trade costs increase bilateral trade, not only through a rise in the mean value of individual shipments (the intensive margin of trade), but also through an increase in the number of exporting firms (the extensive margin of trade). The main aim of this paper is to provide new empirical evidence on the effects of the EuroMediterranean (EuroMed) agreements on both margins of trade. Using highly disaggregated export data for four North African countries (Algeria, Egypt, Morocco and Tunisia) over the 1995 –2008 period, we estimate the impact of the EuroMed agreements on both trade margins, thus providing empirical evidence about the validity of theoretical predictions. Our results show that North African countries enjoyed significant positive returns from the Barcelona Process, through increased exports of manufactured products to the four most populated continental countries in the European Union